Mr. Guilherme Marques reports

PETRORIO -- 2014 EARNINGS RESULTS

PetroRio (current brand of HRT Participacoes em Petroleo S.A.) has released its results for the fourth quarter of 2014. The financial and operational information herein, except if otherwise indicated, is presented on a consolidated basis and stated in thousands of Brazilian reais according to the international financial reporting standards, including the company's direct subsidiaries: HRT O&G Exploracao e Producao de Petroleo Ltda., HRT Africa Petroleo S.A., HRT America Inc., and their respective subsidiaries and branches.

Message from management

PetroRio began a new chapter in its history. In 2014, the company began producing oil, and, for the first time, the company registered income before interest, taxes, depreciation and amortization, totalling 126.2 million reais. The company's available cash position increased from 155 million reais in December, 2013, to 449 million reais in December, 2014.

Two thousand fourteen was a year of great challenges and even greater achievements for PetroRio, which has undergone an extensive transformation, even changing its corporate name and headquarters. These changes symbolize the company's new focus on transparency, stability, efficient production and safety.

Among the many accomplishments that make the company proud is the decision to invest in production assets, which led it to acquire the Polvo, Bijupira and Salema fields. While waiting for the relevant approvals of the BJSA transaction, the company achieved excellent results in the Polvo field, improving its production curve and significantly reducing production costs. Its operating rates are among the best in the entire Brazilian offshore.

Other important highlight is the end of costly corporate disputes, which allowed the introduction of this new meritocracy culture focused on results. The new headquarters, well located and less costly than the previous one, contributed greatly to a harmonic integration of all company employees due to the open environment without closed spaces. People interact freely, allowing greater exchange of information and ideas, thus making the environment more productive.

The growing financial discipline combined with the wise decision to reduce costs, implemented since early 2014, allowed the company to be better positioned to face the decline in Brent prices, which is evidenced by an increase in cash position. The company feels that the market understands PetroRio's vision focused on value creation and growth plans for the short and long term. Evidence of this analysis was the excellent demand to the company's bond issuance.

Finally, the company believes that the renewal of its personnel, beginning with management, will help create the environment it needs to implement a solid growth platform and become a major oil-producing company in Brazil.

The Polvo field

The acquisition of 60 per cent of the Polvo field and the beginning of oil production in January, 2014, are proof of success and capacity to overcome challenges in PetroRio's history. During these 12 months of operations, the company worked hard to optimize production, seeking to more efficiently drain the reservoir, as well as optimize the field's operating costs, always maintaining the focus on improving safety levels.

Due to this effort throughout 2014, the field's production totalled 3,529,000 barrels of oil at an annual manageable operating cost of $158-million (U.S.), 7 per cent down year on year. In the first quarter of 2015, the company will conclude the renegotiation of the main operational agreements related to the Polvo field, and the company sees potential for an additional operating cost reduction of between 15 per cent and 20 per cent.

In 2014, the Polvo field's operational efficiency averaged 93.3 per cent (record average of 99.9 per cent registered in October), reflecting a great improvement, especially when compared with 2013. In addition, the workover operation time necessary to replace pumps fell from 14 to seven days.

Finally, the company is proud to have celebrated on March 3, 2015, the mark of 1,000 days without accidents resulting in sick leave in the Polvo field.

Due to the facts mentioned herein, the company believes it is on the right track.

The near future

Based on PetroRio's new strategy to operate oil fields already in production phase, the company seeks to achieve operational excellence, and, therefore, the company focuses on hiring highly motivated and qualified people, which the it believes will allow it to extend the existing benefits in the Polvo field to the Bijupira and Salema fields, recently acquired.

After obtaining the relevant approvals, the company will begin the operational integration between the fields, which may contribute to PetroRio becoming the fifth-largest oil producer in Brazil, operating an average of more than 30,000 barrels of oil per day. This means tripling its current production and positions PetroRio as one of the major emerging companies in the Brazilian oil industry. Located only 80 kilometres away, the Polvo and BJSA fields offer important synergy gain opportunities.

The company's plans for the next fiscal year include divestments of assets, such as the concessions in Namibia and Solimoes, and aircraft.

The company will continue to operate with great safety, and it plans to increasingly strengthen the trust relationship with the various stakeholders of the company, including its business partners.

Debenture issue

Despite the adverse market conditions, on Oct. 24, PetroRio raised 87,192 reais on the capital market through the issue of 4,359,624 debentures. This result demonstrates investors' trust in the company's new business model, given that the proceeds ranged from 60,000 reais to 90,000 reais.

These funds will be allocated to the development of already-known oil reserves in the Polvo field, or for the acquisition and development of new assets. With a low financing cost and a lock-up period, in case of conversion, these debentures represent an alignment between investors and the company, with their return associated with PetroRio's long-term results.

The debenture issue characteristics were disclosed in the notice to shareholders of Oct. 24, 2014.

Safety, environment, health and social responsibility

PetroRio's activities are based on fundamental values related to the safety of all employees, life and nature. PetroRio is committed to various environment, health and safety initiatives and projects, guided by transparency and good governance.

Through these projects, PetroRio plans to meet the legal requirements of Brazilian regulatory and labour authorities, as well as incorporate and refer to internationally recognized social and environmental standards.

To ensure environmental preservation in production sites, independent consultants audit PetroRio's plans and procedures, so that projects are developed with maximum environmental and social responsibility, in accordance with international standards.

The EHS projects developed by PetroRio include, but are not limited, to the following:

• Pollution control project;
• Environmental monitoring project;
• Worker environmental education project;
• Environmental education program;
• Social communication project;
• Procedure for environmental impact evaluation and mitigating measures;
• Procedures for the evaluation and management of subcontractors;
• Occupational health program;
• Environmental risk prevention program;
• Individual emergency plan.

For example, in the environmental education program project, groups from the communities of 10 municipalities in the area of influence of the Polvo field participate in training programs for the creation of observatories. There are 10 observatories, whose main goal is the identification and monitoring of the impacts of the oil and gas production chain, with the use of audiovisual media.

Each person receives training and participates in a continuing educational project. The project also provides accounting, administrative, legal and technical follow-up by PetroRio's consultants.

Highlights:

• Consolidated net revenue totalled 487 million reais, adjusted earnings before interest, taxes, depreciation and amortization stood at 126 million reais (net of provisions for impairment), and cash position amounted to 449 million reais.
• Total production came to 3.5 million barrels in the Polvo field, with an average daily output of 9,700 barrels (100 per cent of the field).
• Sales totalled 2.3 million barrels of oil (60 per cent of the field).
• In 2014, operational efficiency, throughout the year, averaged 93.3 per cent, with record 99.9 per cent in October, a significant improvement compared with 2013.
• The workover operation time necessary to replace pumps fell from 14 to seven days.
• Successful execution of simulated emergency response tests under the full deployment mode was monitored by Ibama.
• The Polvo field's lifespan has been revised until the end of 2017, in view of the production seen, considering only current producing wells.
• ANP's requirements in audit for compliance check of the operational security management system have been fulfilled.

Operating highlights

Polvo

The Polvo field's production was more stable in 2014, registering a weaker decline in production compared with historical levels.

In 2014, operational efficiency averaged 93.3 per cent, with record efficiency of 99.9 per cent in October, significantly improving compared with 2013 (in 2013, average efficiency came to 79.8 per cent, with minimum of 71 per cent in August, and maximum of 86 per cent in March).

One of the main reasons for the strong increase in efficiency is the reduced need for well workovers, chiefly due to fewer failures in underwater centrifugal pumps. In addition to the fewer failures, the workover operation time necessary to replace pumps fell from 14 to seven days.

It is worth mentioning that since it became a field operator, to date, PetroRio was liable for the 22-per-cent reduction in Polvo's operating expenses, between the first and the fourth quarter of 2014, which reiterates the company's commitment and efforts to pursue an extended economic lifespan of the field.

In 2014, 3,529,000 barrels of oil were produced (100 per cent of the field). Natural gas daily production averaged 11,159,000 cubic metres. Currently, 97 per cent of gas produced is used as fuel in the field's activities.

At the end of December, PetroRio sold its fifth cargo in the year, corresponding to approximately 473,000 barrels.

As a non-recurring event, in August, PetroRio sold 43,000 barrels of slops (liquid deriving from exploration period and stored for subsequent disposal), equivalent to revenue of 3.3 million reais.

Currently, PetroRio is ranked the seventh-largest company in oil production in Brazil, according to ANP.

In third quarter 2014, the Polvo field operations team implemented a relevant study on the field's production behavioural profile since 2012 to date. The study's results reveal that production, since PetroRio became the operator, acquired a more stable profile and downtimes significantly lower than those recorded in previous years.

Even taking into account current oil barrel prices, given the increased operational efficiency and production cost reduction initiatives, the company concluded, with minor adjustments, the economic lifespan of the field may last for at least one more year than originally expected -- that is, until the end of 2017, considering only existing producing wells.

Maersk transaction

In early July, PetroRio entered into a purchase and sale agreement with Maersk to acquire 40 per cent of the exploration, development and production rights in the Polvo field area. In October, PetroRio received a letter from the ANP stating that it had denied the assignment request. This authorization depends on compliance with requirements whose deadline is still continuing. The company is negotiating with the ANP and Maersk to comply with the pending requirements.

Unitization

In June, 2013, the ANP approved the development plan of OGPar's Tubarao Martelo field and determined that a review of the plan should be submitted by Dec. 31, 2014, including the submission of formalization of the production individualization agreement related to the extension of reservoir to the Polvo field area.

Given there were no negotiations between PetroRio and OGX regarding making use of or dividing the operating results of the Tubarao Martelo field, on Aug. 5, 2014, PetroRio requested from the ANP an integral copy of the administrative proceeding, which approved the said development plan.

Since then, the parties have been discussing the matter within the ambit of the ANP without reaching an understanding.

Next steps

As previously disclosed in the second quarter 2014 earnings release, PetroRio's technical staff has already prepared a development plan to be submitted to the ANP regarding the extension of Polvo field's lifespan, which foresees, among other measures, increased production from producing wells.

Solimoes

As disclosed in the second quarter 2014 earnings release, in July, 2014, the Brazilian National Agency of Petroleum, Natural Gas and Biofuels approved the assignment of 6 per cent of exploration, development, production and operation rights of the 19 blocks under HRT O&G's concession in the Solimoes basin to Rosneft Brasil (a Brazilian subsidiary of Rosneft Oil Company).

After the transaction, HRT O&G now holds a 49-per-cent interest in the blocks while Rosneft is the operator of the blocks, with a 51-per-cent interest. The transaction totalled $96-million (U.S.), $54-million (U.S.) of which was received in fourth quarter 2013 and $18-million (U.S.) in first quarter 2014.

In September, 2014, PetroRio, Rosneft Brasil and Petrobras entered into a new memorandum of understanding for the second phase of the gas monetization project, regarding the co-operation in the review of development systems to monetize gas in areas under concession of Petrobras and HRT O&G/Rosneft Brasil in the sedimentary basin of Solimoes.

In third quarter 2014, PetroRio and Rosneft carried on the negotiations to conclude the assignment of operations in the sedimentary basin of Solimoes. Concurrently, the international sanctions Russia has undergone by OECD countries postponed few of Rosneft's initiatives, which implied the delay of procedures foreseen in the negotiation, especially referring to the guarantees required by concession agreements.

Despite these setbacks, the company keeps confident and endeavouring its best efforts to reach a solution, as soon as possible. The company adopted initiatives to control costs and preserve cash, reducing the recurring disbursements until the conclusion of the transaction.

Namibia

PetroRio carried on the farm-down process of licences held in Namibia through meetings with interested companies and providing access to the data room of data stored at the Houston office, HRT America.

The company concluded the 3-D modelling studies of oil systems at the Walvis and Orange basins, Namibia onshore, by applying data collected at source rocks and reservoir from three drillings executed, and the company believes in the basins' oil potential.

The company estimates expenses of 100,000 reais per month in Namibia until the conclusion of the farm-down of this asset.

The reductions implemented in the Namibia and Solimoes projects represent a cut by 75 per cent to 90 per cent in 2015 disbursements compared with 2014.

Ipex sale

In September, PetroRio entered into the purchase and sale agreement with Eurofins scientific group to sell its subsidiary Integrated Petroleum Expertise Company -- Servicos em Petroleo Ltda.

The signature of this agreement was another important initiative of PetroRio to implement the corporate cost reduction measures totalling approximately 9 million reais per year.

Financial performance

Adjusted earnings before interest, taxes, depreciation and amortization amounted to 126 million reais in 2014, 429 million reais up on 2013. Operating result was positive by 1,509 million reais compared with the previous year. The cost of products/services is divided into manageable costs and royalties (302 million reais), with a cash effect, and amortization and depreciation (166 million reais), with no cash effect, the second group being responsible for the gross result of 19 million reais.

It is worth mentioning the non-cash expenses of 1,029 million reais related to impairment/well write-offs in 2014 (2,276 million reais in 2013). Impairment and write-offs confirm the company's new philosophy and strategy, focusing on production assets and divestment of exploration assets.

Personnel expenses dropped by 77 per cent, from 168 million reais to 39 million reais, due to the 45-per-cent reduction in the company's work force compared with 2013, from 203 to 111 employees. Personnel expenses are net of the amount allocated to the Polvo and Solimoes projects, and offset by partners proportionally to their stake in these projects.

General and administrative expenses contracted by 34 per cent to 16 million reais. It is worth mentioning that, different from 2013, when drilling exploratory campaigns were in progress and when exploratory expenses were allocated to the intangible assets and maintenance expenses, and operating agreements of Namibia and especially Solimoes are directly allocated to 2014 results.

The depreciation/amortization line was impacted by PetroRio's exploration works started in the Polvo field. Out of the 176 million reais in consolidated depreciation and amortization expenses, 166 million reais refer to the amortization of amounts allocated to the concession and Polvo field's abandonment costs.

In addition, in third quarter 2014, the company sold its subsidiary Integrated Petroleum Expertise (Ipex), impacting the operating income by approximately three million reais, recorded as sale of interest. The results of this company, both in the current and previous quarters, were transferred to the income from discontinued operations line, in accordance with CPC 31 (non-current asset held for sales and discontinued operations).

Total cash, cash equivalents and investments

The company closed 2014 with a consolidated cash flow of 449 million reais, 190 per cent up on 2013 and 11 per cent up on the previous quarter.

Amounts worth noting:

• Inflow of 468 million reais from sales of oil produced in the Polvo field;
• Inflow of million reais from revenue from financial investments; four million reais were received from outsourced personnel services by Integrated Petroleum Expertise (Ipex);
• Inflow of three million reais from leasing of helicopters to third parties;
• Net disbursements of 311 million reais related to the oil exploration and production campaigns; this amount includes the reception of cash calls from third parties in the Polvo, Solimoes and Namibia projects, totalling 216 million reais;
• Disbursed 164 million reais related to the acquisition of BP's 60-per-cent interest in the Polvo field;
• Four million reais disbursed to Maersk related to the advance for acquisition of 40-per-cent interest in the Polvo field;
• Disbursement of two million reais related to the Solimoes project;
• Early payment of the overdue balance (approximately 96 million reais) of the loan taken out with Credit Suisse for the acquisition of interest in the Polvo field;
• Disbursement of 31 million reais related to the area retention rate of the Polvo field exploratory campaign and return of the SOL-T-148 and SOL-T-149 blocks of the Solimoes project;
• Inflow of 60 million reais related to the divestment plan, including: (i) transactions for the sale of a 6-per-cent interest in the Solimoes blocks and four onshore drilling rigs to Rosneft Brasil, (ii) sale of one aircraft, and (ii) sale of the subsidiary Ipex;
• Inflow of 87 million reais from the first issue of debentures convertible into shares;
• Currently, the company has no obligations deriving from loans and/or financing, and no collaterals to restrict its liquidity.

We seek Safe Harbor.